As with most other forms of income or property, you will also need to file taxes when exchanging your crypto for fiat or other cryptocurrencies. Each country has its own regulatory requirements to abide by, as the legal nature of digital transactions using cryptocurrency is treated differently. The legal jargon when talking about cryptocurrency taxation can be quite extensive, and this guide hopes to explain the process.

Global cryptocurrency taxes usually fall into two categories: natural persons (individuals who hold and trade crypto) and legal entities (crypto companies and exchanges). Here we focus on tax requirements of individuals instead of companies.

Natural Persons

The income you receive in cryptocurrency (by turning a profit through trades, purchases, or employment) is taxed in the same manner as income received through fiat currency. This similarly means that you. Unlike property tax, investors do not need to file taxes for simply holding cryptocurrency, only when they sell or trade with it. 

If you turn a profit, you will need to pay a specific rate in taxes. If you experience a loss, you can file a loss and save on capital gains taxes.

Legal Entities

You may find yourself fulfilling this category instead of natural persons as a miner since mining qualifies as self-employment. The benefit of this is, as a miner, you can deduct expenses such as electricity, equipment, and digital storage costs.

Continental Tax Regulations

Let’s look at the specifics of crypto taxes in certain regions.

Europe

Each country in the European Union has its own tax regulations. The EU Antitrust Commission, assisted by multinational cryptologists, controls aggressive tax planning. Their work ensures the value of each cryptocurrency is regulated throughout the EU. Many countries in the EU have accepted that cryptocurrencies are here to stay and will be represented as such by qualifying for specific tax categories such as capital gain and income tax.

However, not all countries in the EU hold this opinion. Germany does not consider cryptocurrency as legal tender, and so, they are not subject to taxes from a personal income standpoint. The investor may need to pay taxes if their profit is above a certain amount. This situation is dependent on your tax residency status in the country and whether you fulfill Germany’s tax and residency requirements. Portugal, Malta, Belarus, Switzerland, Denmark all have similar guidelines and do not enforce personal cryptocurrency taxes.

United Kingdom

Cryptocurrency in the United Kingdom is treated as ‘private money.’ The UK generally does not tax on personal trades, but this depends on the amount the investor profits and whether they are part of an organization.

North America

Cryptocurrency in the USA is considered property and is taxed based on capital gains rather than exchange differences. You will need to pay taxes for holding and trading with cryptocurrency, depending on your profit margins and a state-dependent sales tax for each transaction. As some states are sales tax exempt, the final tax rate varies greatly.

In Canada, any profit is deemed taxable income regardless of its original source, meaning all crypto transactions need to be reported when filing taxes. The cryptocurrency market is highly volatile, so you could be turning a profit without selling. Canadian tax laws clarify that tax on personal cryptocurrency only applies once it gets sold or traded and not if it increases in value due to market changes.  

Asia

Most countries across Asia have had a more conservative approach towards the rise of cryptocurrency as a new means of monetary transaction, and their tax laws reflect that.

A few Southeast Asian countries like Hong Kong, Singapore, Taiwan, and Malaysia are tax-friendly countries in terms of cryptocurrency trading. All countries do not regard cryptocurrency as legal tender; some don’t even have a capital gains tax. Both situations allow you to trade crypto for personal gain more freely though some countries have an income tax for profits derived.

Australia

Cryptocurrencies are seen as property and follow similar laws to the regulation of real estate investments or company shares. Only profits obtained from investments will be taxed annually though traders are encouraged to keep a record of all cryptocurrency transactions.

Conclusion

It is crucial to stay on top of tax regulations when it comes to cryptocurrency, especially due to the ever-changing laws as crypto gets accepted as a form of monetary exchange. Cryptocurrency taxation is more regulated in some countries over others so any long-term financial strategies should be based on the rules of stricter countries instead of fiat currencies.

Some banks and countries are still struggling with crypto and may prohibit its use, so it is essential to keep up with local regulations. Due to the polar nature of tax regulations in different countries, there has been an increasing number of traders who relocate to more tax-friendly places. As cryptocurrency moves more globally, we hope countries will either have a better tax-regulated system or be tax-exempt.